The Greatest Dividend Stock on the Dow

Investors have long looked to companies in the Dow Jones Industrial Average (INDEX: ^DJI) as a sweet spot for dividend-paying companies, and rightfully so. Even with newer technology-related companies (note that "new" is a relative term here), the index typically features mature, dominant names that have strong track records of rewarding their stockholders. Keeping that in mind, let's look at one stock that I think takes the cake as the best dividend stock in the Dow.

Show me the moneyThe one number that makes my case is 27%. It's the 10-year annual average growth rate for McDonald's (NYS: MCD) dividend. It's a substantial factor in explaining McDonald's outstanding performance over the past 10 years. Consider that over the past decade the S&P 500 returned an average of 4% each year: Over that same period, McDonald's generated an average return of just less than 17%.

And better yet, the company shows no signs of letting up. It recently reported strong earnings, growing profits by 11%, although the company did warn that the impact of foreign exchanges presented potential headwinds. Despite the challenging macroeconomic environment, the company still managed to increase its revenue, traffic, and market share. Talk about impressive.

The king and his courtThat's not to say that other Dow components don't deserve their moment in the spotlight as well. Three other Dow companies managed to raise their payouts at an average annual clip above 20% over the past decade: semiconductor stalwart Intel (NAS: INTC) , Kraft (NYS: KFT) , and Home Depot (NYS: HD) . These companies share more in common than might meet the eye. Each one dominates a substantial portion of the market in which it operates, and each also generates strong cash flows and carries only a moderate amount of debt. In total, here we see established, relatively stable, cash-flow-rich companies that all have demonstrated strong commitments to returning cold, hard cash to shareholders.

Foolish bottom lineInvestors looking to add some much-needed income to their portfolios would do well to look past a stock's yield alone. Although current yield certainly matters, companies that can consistently growth their payouts over time also represent a powerful driver of long-term returns.